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Can Investors Benefit from Google Trends and Cryptocurrency Volatility?

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google trends

With both traditional stocks and cryptocurrencies seeing steep price declines in the last 36 hours, an article recently written by Marc Howard caught my eye. In “How I Created a Bitcoin Trading Algorithm Using Sentiment Analysis With a 29% Return,” Howard provides a breakdown of how he built the bot.

Using Google Trends, he obtained the data for the preceding 90 days for the terms “BTC USD” and “buy bitcoin.”

Historically, cryptocurrencies have been much more volatile than traditional stocks, and Howard was hoping to use this to his advantage with readily available data from Google. He surmised that if people were searching for terms like “buy bitcoin” and “BTC USD” that market sentiment was good and the price of bitcoin was likely to rise, even from day to day.

He combined this with an analysis of the price of bitcoin over the same 90-day period and set about building the bot with Excel. The results suggested that when the price had risen by more than $80 on the previous day and the ratio of the two terms “buy bitcoin” to “BTC USD” was more than 35%, it would be prudent to place a buy order and conversely sell when the opposite was true.

Using Google Trends

As Howard points out in the article, some of the parameters used, like the prior day price increase of $80, were fairly arbitrary so we thought we would verify the results and consider possible improvements for the bot.

Howard had produced a paper gain of 29% over the 90 day period which compares favorably with a break even from either a daily buy and sell or HODL throughout the period.

Can Investors Benefit From Google Trends and Cryptocurrency Volatility

We built the Google Sheet above, which is available for download as a local Excel file, and it contains two worksheets, “Marc Howard” and “MoneyMakers”. The “MoneyMakers” worksheet was created before we contacted Howard with our findings, and rather than use the average daily closing price for bitcoin we used the Coinbase closing price.

This was done on the basis that an average price is simply that, an average and an actual exchange price would be closer to reality. Coinbase is one of the biggest exchanges in the US, and we were able to pick up the closing prices with an API whereas Howard manually entered the average closing prices.

In addition to the variances between Coinbase closing prices and average closing prices, we noticed that the Google Trends data in the original report produced by Howard was different from the data we had obtained.

In some cases, the difference was relatively small, but on other days it was quite significant. A Google search confirmed that Google Trends data does vary and even modifying our IP address to various geographical locations didn’t help.

Trading Bot Design

As shown in the screenshot above, we were able to validate the results of a 29% return over the 90-day period by using identical data to Howard. Unfortunately, the bot is quite sensitive to small variances in the input data and using a similar methodology on the Coinbase exchange and accepting variances in Google Trends data would have given a break-even return.

One major weakness in the original design of the bot, as highlighted by Vikram Urun, is that Google Trends doesn’t provide real-time data and is generally two days old, thus rendering the bot unusable.

Howard is looking to enhance the bot in due course and acknowledged the time lag with Google Trends. As a workaround he suggested:

to change the timespan to Hourly then you can aggregate to a daily metric.

We commend the work carried out by Marc Howard and look forward to seeing his further iterations of the trading bot.

Featured image from Shutterstock.

Financial analyst and technical writer with a keen interest in bringing blockchain technology to the masses.

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HODL Crypto, Sell Shares, Buy Gold

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Buy Gold

The cryptocurrency markets are bearish, share prices are down across the globe, some experts and indicators say it’s time to buy gold again.

In fact, as an international share sell-off continues, investors may have already started to move their money to gold. Both prices and trading volume for the precious metal are showing an uptick in the early hours of today, October 11, 2018.

Investment firm Incrementum published a chartbook summary this week of their “In Gold we Trust” Report 2018. It summarizes, in charts and bullets, how monetary policy, financial infrastructure, and the performance of other markets affects and could affect the performance of the gold markets.

Incrementum’s chartbook is a must-read and useful if you are currently HODLing onto your cryptocurrency investments waiting for the light and avoiding traditional stock markets.

The Conclusion – If There’s a Recession Buy Gold

The charts show that a number of factors in recent years, including the relationship between gold and global trade, share performance, emerging country reserves, and levels of debt could be signaling that a healthy run for gold values is imminent.

Not least, the possibility of a global downturn, or even a full-on recession, means it could be time to look at stocks of the precious metal instead.

Recent IMF reports of plateauing global growth and concerns over fiscal policy uncertainty and the impact of rising interest rates support Incrementum’s suggestion that a recession might be ahead. At least it could be if governments don’t get a grip on their monetary policies. It’s not just trading issues that are causing problems, confidence in Europe and the UK is falling due to the unresolved “Brexit” scenario.

Incrementum makes it clear:

“How does the gold price perform in recessions? Short answer: Very well!”

There are two key reasons for this, investors look for safer bets in times of financial concern and crises and these investors will avoid “monetary and fiscal stimulus,” and buy gold to protect against inflation:

“Gold is the classical safe haven asset.”

Gold and Crypto Are Friends

Incrementum is also very positive about cryptocurrencies, Bitcoin as “digital gold,” and blockchain technologies which may fundamentally change global monetary order.

“Gold and cryptocurrencies are friends, not foes. In fact, a collaborative approach would play to the strengths of both.”

Underlying gold transactions with blockchain and the emergence of gold-based cryptocurrencies would work towards this collaboration.

Any investment is, of course, a risk and much analysis is needed to decide what avenue is the right choice for an individual. Traditional stock markets are taking a beating and confidence is falling in the big technology companies and their shares. Cryptocurrency markets are waiting for their next big market signals, institutional interest, and regulatory decisions.

Meanwhile, a new gold rush might be on the way…

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